Question 1

Which of the following statements is correct?

Accepted Answer

A) Uncorrelated assets have a correlation of -1.0. 
B) Most common stocks are positively correlated with each other because they are impacted by the economic factors. 
C) We can typically add many stocks together to fully eliminate the market risk in a portfolio. 
D) None of these statements is correct. 
A) Uncorrelated assets have a correlation of -1.0. 
B) Most common stocks are positively correlated with each other because they are impacted by the economic factors. 
C) We can typically add many stocks together to fully eliminate the market risk in a portfolio. 
D) None of these statements is correct.

Question 2

Portfolio Weights You have $15,040 to invest.You want to purchase shares of Company Air at $42.50,Company B at $51.50,and Company F at $9.75.How many shares of each company should you purchase so that your portfolio consists of 20 percent Company A,40 percent Company B,and 40 percent Company F? Report only whole stock shares.

Accepted Answer

A) Company A = 20 shares, Company B = 40 shares, Company F = 40 shares 
B) Company A = 85 shares, Company B = 21shares, Company F = 39 shares 
C) Company A = 71 shares, Company B = 117 shares, Company F = 615 shares 
D) Company A = 353 shares, Company B = 291 shares, Company F = 1538 shares 
A) Company A = 20 shares, Company B = 40 shares, Company F = 40 shares 
B) Company A = 85 shares, Company B = 21shares, Company F = 39 shares 
C) Company A = 71 shares, Company B = 117 shares, Company F = 615 shares 
D) Company A = 353 shares, Company B = 291 shares, Company F = 1538 shares

Question 3

A stock has an expected return of 12 percent and a standard deviation of 20 percent.Long-term Treasury bonds have an expected return of 9 percent and a standard deviation of 15 percent.Given this data,which of the following statements is correct?

Accepted Answer

A) The two assets have the same coefficient of variation. 
B) The stock investment has a better risk-return trade-off. 
C) The bond investment has a better risk-return trade-off. 
D) Both investments have the same diversifiable risk. 
A) The two assets have the same coefficient of variation. 
B) The stock investment has a better risk-return trade-off. 
C) The bond investment has a better risk-return trade-off. 
D) Both investments have the same diversifiable risk.

Question 4

Which of the following is correct regarding the coefficient of variation?

Accepted Answer

A) It measures the amount of standard deviation for each one percent of covariance. 
B) It measures the amount of return achieved for each one percent of risk taken. 
C) It measures the amount of risk taken for each one percent of return achieved. 
D) None of these statements is correct. 
A) It measures the amount of standard deviation for each one percent of covariance. 
B) It measures the amount of return achieved for each one percent of risk taken. 
C) It measures the amount of risk taken for each one percent of return achieved. 
D) None of these statements is correct.

Question 5

If you invested $1,000 in Disney and $5,000 in Oracle and the two companies returned 15 percent and 18 percent respectively,what was your portfolio's return?

Accepted Answer

A) 15.5 percent 
B) 17.1 percent 
C) 16.2 percent 
D) 17.5 percent 
A) 15.5 percent 
B) 17.1 percent 
C) 16.2 percent 
D) 17.5 percent

Question 6

Investment Return Rx Corp.stock was $60.00 per share at the end of last year.Since then,it paid a $1.00 per share dividend last year.The stock price is currently $62.50.If you owned 400 shares of Rx,what was your percent return?

Accepted Answer

A) 1.67 percent 
B) 4.17 percent 
C) 5.60 percent 
D) 5.83 percent 
A) 1.67 percent 
B) 4.17 percent 
C) 5.60 percent 
D) 5.83 percent

Question 7

The efficient frontier portfolios are:

Accepted Answer

A) portfolios that risk adverse investors will select. 
B) portfolios where all the market risk is diversified away. 
C) portfolios where the correlation among assets is 0.0. 
D) portfolios that dominate all others. 
A) portfolios that risk adverse investors will select. 
B) portfolios where all the market risk is diversified away. 
C) portfolios where the correlation among assets is 0.0. 
D) portfolios that dominate all others.

Question 8

Rank the following three stocks by their total risk level,highest to lowest.Night Ryder has an average return of 14 percent and standard deviation of 30 percent.The average return and standard deviation of WholeMart are 12 percent and 25 percent; and of Fruit Fly are 25 percent and 40 percent.

Accepted Answer

A) Fruit Fly, Night Ryder, WholeMart 
B) Night Ryder, WholeMart, Fruit Fly 
C) WholeMart, Fruit Fly, Night Ryder 
D) WholeMart, Night Ryder, Fruit Fly 
A) Fruit Fly, Night Ryder, WholeMart 
B) Night Ryder, WholeMart, Fruit Fly 
C) WholeMart, Fruit Fly, Night Ryder 
D) WholeMart, Night Ryder, Fruit Fly

Question 9

Which of these is the investor's combination of securities that achieves the highest expected return for a given risk level?

Accepted Answer

A) Efficient portfolio 
B) Modern portfolio 
C) Optimal portfolio 
D) Total portfolio 
A) Efficient portfolio 
B) Modern portfolio 
C) Optimal portfolio 
D) Total portfolio

Question 10

Which of the following is an index that tracks 500 companies,which allows for a great deal of diversification?

Accepted Answer

A) Nasdaq 
B) Fortune 500 
C) S&P 500 
D) Wall Street Journal 
A) Nasdaq 
B) Fortune 500 
C) S&P 500 
D) Wall Street Journal

Question 11

Standard Deviation The standard deviation of the past five monthly returns for PG Company are 2.75 percent,-0.75 percent,4.15 percent,6.29 percent,and 3.84 percent.What is the standard deviation?

Accepted Answer

A) 2.309 percent 
B) 2.581 percent 
C) 3.256 percent 
D) 3.406 percent 
A) 2.309 percent 
B) 2.581 percent 
C) 3.256 percent 
D) 3.406 percent

Question 12

Average Return The past five monthly returns for PG Company are 1.25 percent,-1.50 percent,4.25 percent,3.75 percent,and 1.98 percent.What is the average monthly return?

Accepted Answer

A) 1.946 percent 
B) 2.546 percent 
C) 9.73 percent 
D) 12.73 percent 
A) 1.946 percent 
B) 2.546 percent 
C) 9.73 percent 
D) 12.73 percent

Question 13

Jenna receives an investment newsletter that recommends that she invest in a stock that has doubled the return of the S&P 500 in the last two months.It also claims that this stock is a "safe bet" for the future.Which of the following statements is correct regarding this information?

Accepted Answer

A) This investment newsletter is most likely correct because they most likely have some special knowledge about the stock. 
B) The investment newsletter contains contrary information since the stock must be a high risk and therefore cannot also be a "safe bet." 
C) It is common for individual stocks to double the return of the S&P 500 and still be a "safe bet." 
D) None of these statements is correct. 
A) This investment newsletter is most likely correct because they most likely have some special knowledge about the stock. 
B) The investment newsletter contains contrary information since the stock must be a high risk and therefore cannot also be a "safe bet." 
C) It is common for individual stocks to double the return of the S&P 500 and still be a "safe bet." 
D) None of these statements is correct.

Question 14

The past five monthly returns for Kohl's are 2.55 percent,-8.62 percent,-14.44 percent,-1.52 percent,and 4.75 percent.What is the average monthly return?

Accepted Answer

A) 2.21 percent 
B) 1.21 percent 
C) -3.46 percent 
D) -6.17 percent 
A) 2.21 percent 
B) 1.21 percent 
C) -3.46 percent 
D) -6.17 percent

Question 15

You are a risk-averse investor with a low-risk portfolio of bonds.How is it possible that adding some stocks (which are riskier than bonds)to the portfolio can lower the total risk of the portfolio?

Accepted Answer

Bonds and stocks have a low correlation

Question 16

Define an efficient portfolio and an efficient frontier.

Accepted Answer

A portfolio that has the highest expecte

Question 17

Consider the risk-return relationship in T-bills during each decade since 1950.Given this data,which of the following statements is correct?

Accepted Answer

A) The best risk-return relationship was during the 1950s. 
B) The best risk-return relationship was during the 1990s. 
C) Since T-bills are backed by the full faith of the U.S.government, computing the risk-return relationship for them is invalid. 
D) None of these statements is correct. 
A) The best risk-return relationship was during the 1950s. 
B) The best risk-return relationship was during the 1990s. 
C) Since T-bills are backed by the full faith of the U.S.government, computing the risk-return relationship for them is invalid. 
D) None of these statements is correct.

Question 18

Which of the following statements is correct?

Accepted Answer

A) Stocks and long-term Treasury bonds are highly positively correlated. 
B) Stocks and Treasury bills are highly positively correlated. 
C) Stocks, long-term Treasury bonds, and Treasury bills are all highly correlated. 
D) None of these statements is correct. 
A) Stocks and long-term Treasury bonds are highly positively correlated. 
B) Stocks and Treasury bills are highly positively correlated. 
C) Stocks, long-term Treasury bonds, and Treasury bills are all highly correlated. 
D) None of these statements is correct.

Question 19

Average Return The past five monthly returns for K and Company are 4.25 percent,4.13 percent,-2.05 percent,3.25 percent,and 7.25 percent.What is the average monthly return?

Accepted Answer

A) 1.403 percent 
B) 1.744 percent 
C) 3.366 percent 
D) 4.186 percent 
A) 1.403 percent 
B) 1.744 percent 
C) 3.366 percent 
D) 4.186 percent

Question 20

Portfolio Weights If you own 400 shares of Air Line Inc.at $44.50,500 shares of BuyRite at $52.90,and 100 shares of MotorCity at $9.25,what are the portfolio weights of each stock?

Accepted Answer

A) Air Line = 0.3333, BuyRite = 0.3333, MotorCity = 0.3333 
B) Air Line = 0.40, BuyRite = 0.50, MotorCity = 0.10 
C) Air Line = 0.3940, BuyRite = 0.5855, MotorCity = 0.0205 
D) Air Line = 0.4173, BuyRite = 0.4960, MotorCity = 0.0867 
A) Air Line = 0.3333, BuyRite = 0.3333, MotorCity = 0.3333 
B) Air Line = 0.40, BuyRite = 0.50, MotorCity = 0.10 
C) Air Line = 0.3940, BuyRite = 0.5855, MotorCity = 0.0205 
D) Air Line = 0.4173, BuyRite = 0.4960, MotorCity = 0.0867

Which of the following statements is correct?

A stock has an expected return of 12 percent and a standard deviation of 20 percent.Long-term Treasury bonds have an expected return of 9 percent and a standard deviation of 15 percent.Given this data,which of the following statements is correct?

Which of the following is correct regarding the coefficient of variation?

If you invested $1,000 in Disney and $5,000 in Oracle and the two companies returned 15 percent and 18 percent respectively,what was your portfolio's return?

Investment Return Rx Corp.stock was $60.00 per share at the end of last year.Since then,it paid a $1.00 per share dividend last year.The stock price is currently $62.50.If you owned 400 shares of Rx,what was your percent return?

The efficient frontier portfolios are:

Rank the following three stocks by their total risk level,highest to lowest.Night Ryder has an average return of 14 percent and standard deviation of 30 percent.The average return and standard deviation of WholeMart are 12 percent and 25 percent; and of Fruit Fly are 25 percent and 40 percent.

Which of these is the investor's combination of securities that achieves the highest expected return for a given risk level?

Which of the following is an index that tracks 500 companies,which allows for a great deal of diversification?

Standard Deviation The standard deviation of the past five monthly returns for PG Company are 2.75 percent,-0.75 percent,4.15 percent,6.29 percent,and 3.84 percent.What is the standard deviation?

Average Return The past five monthly returns for PG Company are 1.25 percent,-1.50 percent,4.25 percent,3.75 percent,and 1.98 percent.What is the average monthly return?

Jenna receives an investment newsletter that recommends that she invest in a stock that has doubled the return of the S&P 500 in the last two months.It also claims that this stock is a "safe bet" for the future.Which of the following statements is correct regarding this information?

The past five monthly returns for Kohl's are 2.55 percent,-8.62 percent,-14.44 percent,-1.52 percent,and 4.75 percent.What is the average monthly return?

You are a risk-averse investor with a low-risk portfolio of bonds.How is it possible that adding some stocks (which are riskier than bonds)to the portfolio can lower the total risk of the portfolio?

Define an efficient portfolio and an efficient frontier.

Consider the risk-return relationship in T-bills during each decade since 1950.Given this data,which of the following statements is correct?

Which of the following statements is correct?

Average Return The past five monthly returns for K and Company are 4.25 percent,4.13 percent,-2.05 percent,3.25 percent,and 7.25 percent.What is the average monthly return?

Portfolio Weights If you own 400 shares of Air Line Inc.at $44.50,500 shares of BuyRite at $52.90,and 100 shares of MotorCity at $9.25,what are the portfolio weights of each stock?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money

Time Value of Money

Valuing Bonds

Valuing Stockspart

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, equity, and Capital Structure

Sharing Firm Wealth: Dividends, share Repurchases and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 9: Characterizing Risk and Return

Which of the following statements is correct?

A stock has an expected return of 12 percent and a standard deviation of 20 percent.Long-term Treasury bonds have an expected return of 9 percent and a standard deviation of 15 percent.Given this data,which of the following statements is correct?

Which of the following is correct regarding the coefficient of variation?

If you invested $1,000 in Disney and $5,000 in Oracle and the two companies returned 15 percent and 18 percent respectively,what was your portfolio's return?

Investment Return Rx Corp.stock was $60.00 per share at the end of last year.Since then,it paid a $1.00 per share dividend last year.The stock price is currently $62.50.If you owned 400 shares of Rx,what was your percent return?

The efficient frontier portfolios are:

Rank the following three stocks by their total risk level,highest to lowest.Night Ryder has an average return of 14 percent and standard deviation of 30 percent.The average return and standard deviation of WholeMart are 12 percent and 25 percent; and of Fruit Fly are 25 percent and 40 percent.

Which of these is the investor's combination of securities that achieves the highest expected return for a given risk level?

Which of the following is an index that tracks 500 companies,which allows for a great deal of diversification?

Standard Deviation The standard deviation of the past five monthly returns for PG Company are 2.75 percent,-0.75 percent,4.15 percent,6.29 percent,and 3.84 percent.What is the standard deviation?

Average Return The past five monthly returns for PG Company are 1.25 percent,-1.50 percent,4.25 percent,3.75 percent,and 1.98 percent.What is the average monthly return?

Jenna receives an investment newsletter that recommends that she invest in a stock that has doubled the return of the S&P 500 in the last two months.It also claims that this stock is a "safe bet" for the future.Which of the following statements is correct regarding this information?

The past five monthly returns for Kohl's are 2.55 percent,-8.62 percent,-14.44 percent,-1.52 percent,and 4.75 percent.What is the average monthly return?

You are a risk-averse investor with a low-risk portfolio of bonds.How is it possible that adding some stocks (which are riskier than bonds)to the portfolio can lower the total risk of the portfolio?

Define an efficient portfolio and an efficient frontier.

Consider the risk-return relationship in T-bills during each decade since 1950.Given this data,which of the following statements is correct?

Which of the following statements is correct?

Average Return The past five monthly returns for K and Company are 4.25 percent,4.13 percent,-2.05 percent,3.25 percent,and 7.25 percent.What is the average monthly return?

Portfolio Weights If you own 400 shares of Air Line Inc.at $44.50,500 shares of BuyRite at $52.90,and 100 shares of MotorCity at $9.25,what are the portfolio weights of each stock?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money

Time Value of Money

Valuing Bonds

Valuing Stockspart

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, equity, and Capital Structure

Sharing Firm Wealth: Dividends, share Repurchases and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters